Tuesday, November 26, 2013

Why Am I Staying Bullish on Walgreen?

By Sarfaraz A. Khan and Gohar Yousuf

The leading U.S. drugstore chain operator Walgreen (WAG) has partnered with the European giant Alliance Boots and AmerisourceBergen Corp. (ABC),
one of the world’s largest pharmaceutical service companies, to expand
its wings outside of North America as it aims to become the biggest drug
store chain on both sides of the Atlantic. More recently, Walgreen has
also acquired some of Kerr Drugs’ assets. Through mergers and
partnerships, Walgreen seeks to considerably grow its top and bottom
line, while exercising strict cost discipline, which would improve its
margins. The positive impact of these mergers was evident in the recent
quarterly results. So far this year, the company’s shares have
outperformed the broader market and due to its bright outlook,
Walgreen’s shares could continue to move higher in the coming quarters.

Partnerships and Acquisitions

Its strategic
partnership with Alliance Boots continues to pay-off as Walgreen
achieved $154 million in the combined synergies in the fiscal year,
which is $4 million above the high end of its estimate. Walgreen has
signed a 10-year contract with AmerisourceBergen and its full worth
over a decade is around $400 billion. This partnership has given birth
to the biggest buyer of generic drugs in the world. Earlier in
September, AmerisourceBergen officially announced that it will distribute
pharmaceuticals to more than 8100 Walgreen stores while the three
(AmerisourceBergen, Walgreen and Alliance Boots) would collaborate with
each other on the global supply chain. Naturally, AmerisourceBergen
would become the primary supplier of generics to Walgreen.

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